Often small business owners, especially when working with family or friends, seek to resolve business disputes without having to bring litigation. Avoiding litigation may be of paramount importance. While it is not always feasible to resolve such disputes short of litigation, in certain circumstances, there are tools to be able to amicably resolve intra business disputes without filing litigation. Having represented minority owners, majority owners, and the business involved in the dispute, the cost of full-blown litigation can be expensive to all involved. And while in some cases, litigation is the only path, utilizing these tools prior to commencing litigation can save significant sums of money and heartache.
Before commencing litigation, the owners should try and negotiate amongst themselves to determine if the dispute can be resolved without the necessity of retaining attorneys, commencing litigation, or otherwise further escalating the dispute.
If negotiation amongst the owners is unsuccessful, the next step is usually the retention of an attorney to represent each owner, and in some circumstances the entity. A demand letter is typically sent by the attorney of the disgruntled owner to the alleged wrongdoer seeking a resolution.
Mediation could be conducted before or during a pending litigation. Most states have a mandatory alternative dispute resolution requirement for pending litigations. Often times, the litigating parties choose mediation and rely upon an experienced practitioner, retired judge, or individual with business experience in the area of operation of the LLC to conduct the mediation. With 95% or more of litigations ending in settlement, mediation is often the procedure used to help the disputing parties reach resolutions.
Some operating agreements/shareholder agreements have an arbitration clause. Absent such a clause, or agreement by both parties, arbitration cannot be required by one party against the other. If there is such a clause, however, courts will often require arbitration and dismiss a pending litigation.
The next step, if pre-suit negotiation is unsuccessful (or if there is not a binding arbitration clause), in resolving the shareholder dispute is typically litigation. Once in litigation, there are multiple tools that the well-advised practitioner can use to garner the best result which will be discussed in a separate post.